Peter Thiel’s CS183 Startup - Class 14 Notes Essay

Here is an essay version of my class notes from Class 14 of CS183: Startup. Errors and omissions are mine. Credit for good stuff is Peter’s.

Class 14 Notes Essay — Seeing Green

I. Thinking About Energy

Alternative energy and cleantech have attracted an enormous amount of investment capital and attention over the last decade. Almost nothing has worked as well as people expected. The cleantech experience can thus be quite instructive. Asking important questions about what went wrong and what can be done better is a very good way to review and apply many of the things we’ve talked about in class.

A. The Right Framework

How should one think about energy as a sector? What’s an appropriate theoretical framework?

Revisiting the 2x2 matrix of determinate/indeterminate and optimistic/pessimistic futures may be useful. To recap, here are examples of those respective quadrants:

It is important to note — especially in the cleantech context, we we’ll see — that planned indeterminacy doesn’t really work. You can’t just plan to go and get a new job every 2 years and call it a plan. That’s the absence of a plan. It’s equivalent to having a plan to get rich. “I intend to get rich and famous” is a vague aspiration, not a plan. Plans can’t just be a portfolio you throw together. For a portfolio approach to work, it must have a specific granularity to it. “If I do x, it will lead to 5 specific options at a certain time in the future, at which point I’ll choose the best of them” might be specific enough to work.

But in practice, people don’t usually target specific options that will unfold. They just figure that they will have plenty of options, and that they’ll figure everything out later. So while in theory there can be a more determinate, substantive version of indeterminate optimism, in practice statistical thinking breeds radical indeterminacy and process-based thinking. Aspirations replace plans.

And yet people are skeptical of startups with plans. The conventional wisdom is that detailed plans are worthless because everything is just going to change anyway. But having a detailed plan is key. To be sure, there are some cases where things work despite the lack of a plan. But there is an awful lot of failure there too. Winning without a plan is hitting the jackpot, and most people do not hit the jackpot. Since you want to have as much mastery over things as possible, you need to plan.

B. Applied to Energy

To think about the future of energy, we can use the same matrix. The quadrants shake out like this:

Determinate, optimistic: one specific type of energy is best, and needs to be developed Determinate, pessimistic: no technology or energy source is considerably better. You have what you have. So ration and conserve it. Indeterminate, optimistic: there are better and cheaper energy sources. We just don’t know what they are. So do a whole portfolio of things. Indeterminate, pessimistic: we don’t know what the right energy sources are, but they’re likely going to be worse and expensive. Take a portfolio approach.

The determinate optimistic quadrant arguably makes the most sense. But it’s also the least talked about today.

The energy market is huge. It’s probably good to think about it as two separate markets. One part of the division is power generation: things like wood, coal, natural gas, nuclear, biomass, hydro, and solar — basically things that feed into the power grid.